China deepens its economic deceleration 

China’s economy grew 6.3% annually during the second quarter of this year, which was below expectations of 7.3%. On a quarterly comparison, growth was 0.8%, which also represented a weaker reading than the 2.2% advance recorded in the first quarter. After disappointing economic data for April and May, June’s figures showed a moderate improvement, especially due to government policy support in infrastructure and manufacturing. However, the housing market and private sector fixed asset investment remained weak. On the consumer side, June retail sales grew 3.1% annually (vs. 3.2% estimated), with hotel, sports and entertainment products and alcohol and tobacco growing the most, while automobiles, office products and daily use items experienced a decline. Similarly, online sales decelerated versus May’s figures, despite having risen 6.7% annually.

On the other hand, labor conditions continued to show mixed results. While the survey-based urban unemployment rate remained unchanged at 5.2%, unemployment among the younger population (16 to 24 years old) registered a new record rate of 21.3%. In this sense, the higher youth unemployment rate reflects a structural mismatch in the labor market and an unbalanced recovery of the economy.

The spokesman of the National Bureau of Statistics, Fu Linghui, pointed out that the country is facing a complex geopolitical and economic environment due to tensions with the United States and weakness in exports and the real estate sector, respectively. He also stated that China can still achieve its full-year growth target of around 5%. However, when asked about the outlook for the second half of the year, spokesman Fu commented that he expects real estate investment to remain low in the near future and that youth unemployment could rise further before declining after August.

That said, we do not rule out the government stepping up policy easing measures after this disappointing GDP data, including: further easing of fiscal and monetary policy (more rate cutbacks and relaxation of reserve requirements for banks), and nationwide support on housing policies, likely to include relief on down payments.

Unemployment rate (%)

Source: JP Morgan

GDP Growth (%)

In the graphic:

• %oya: refers to annual percentage change.
• %q/q: refers to the quarterly percentage variation.

Source: JP Morgan